Fair play for ‘white cat’ and ‘black cat’

Writer: Lin Min | Editor: Jane Chen | From: | Updated: 2018-11-12

Email of the writer: linmin67@126.com

For decades before the launch of reform and opening up in late 1978, private enterprises and trade had been illegal, with daily necessities distributed through rationing. The rigid planned economy powered by only State-owned enterprises (SOEs) had been deeply ingrained in the people’s minds as the holy grail of socialism.

Except Deng Xiaoping, who refused to see the country mired in ideological struggle and dire poverty.

Deng emancipated the minds of nearly 1 billion people at the Third Plenary Session of the 11th CPC Central Committee in December 1978, when he led the Party in dumping the outdated ideologies that had prevented individuals from fulfilling their full potential. For the first time in several decades, Chinese were allowed to run their own businesses, heralding an era of economic liberalization and prosperity.

Four decades on, the private sector has soared to account for 60 percent of the country’s GDP and 80 percent of employment.

However, the debate over the role of private companies never dies. Earlier this year, some people called for the gradual exit of the private sector, while a few others even clamored for the nationalization of private enterprises.

At the same time, many private firms saw a sharp downturn in their operations due to high tax burdens, difficulties getting financing and an economic slowdown, with some of them finding themselves ensnared in a credit crunch and struggling to survive. The stock prices of quite a large number of listed companies controlled by private entrepreneurs experienced a meltdown as the shares pledged for loans by the cash-strapped owners faced the imminent threat of forced sale.

This year’s controversies surrounding the role of the private sector are reminiscent of the debate in the early 1990s over whether a market economy is capitalist, which threatened to torpedo the reform process before Deng weighed in by touring South China in early 1992. His speeches during the tour revived reform and opening-up efforts that had been stalled amid ideological retrogression.

Deng’s 1960s quote, “It doesn’t matter if a cat is black or white, so long as it catches mice,” became an iconic expression that stood for his lifelong pragmatism, which enabled the country to embrace a market economy. His speeches in 1992 highlighted such unmistakable pragmatism and pulled China again from the quagmire of ideological debates.

History has proven that his pragmatism has triumphed – to the blessing of the Chinese nation.

Guangdong has become the country’s leading province in terms of GDP because the private sector has flourished, while some provinces in Northeast China that have lagged behind in the economic boom are known for their over-reliance on SOEs. According to Guangdong Vice Governor Chen Liangxian, private companies contributed over 50 percent of the province’s GDP and tax revenue, more than 80 percent of its new jobs, and at least 75 percent of its innovation achievements in 2017.

Shenzhen is even a better example. The former backwater fishing village would not have become a Silicon Valley of a sort and a modern metropolis of over 12 million people if private enterprises had not been given free rein. Among the 11,200 State-level high-tech firms in Shenzhen, over 80 percent of them are privately run. The seven Shenzhen-based companies on the latest Fortune Global 500 list, namely Huawei, Tencent, Ping An, China Merchants Bank, Vanke, Evergrande and Amer, are private companies or joint stock companies.

However, talks of diminishing the role of the private sector and news of entrepreneurs running into trouble earlier this year cast doubts on the direction of the country’s economic policies.

At this crucial moment, President Xi Jinping convened a symposium on private enterprises Nov. 1, in a rare meeting with private entrepreneurs. At the symposium, he declared that the private economy is an essential element of China’s economic system, and that “private enterprises and private entrepreneurs belong to our family.” Such unequivocal statements dispelled the cloud hanging over the fate of the private sector.

He also announced six measures to support the nonpublic sector, including lowering taxes and fees, making loans more accessible and less costly, and leveling the playing field.

Providing a level playing field for all market players, irrespective of their ownership, now looms large as an urgent step for China in seeking new impetus to boost the slowing economy and make economic development more sustainable and efficient.

In October, central bank governor Yi Gang told an international symposium that the country may apply the competitive neutrality principle to SOEs as part of its efforts to solve structural problems in the economy.

Competitive neutrality, first proposed by the Australian Government in 1996, requires “that government business activities should not enjoy net competitive advantages over their private-sector competitors simply by virtue of public -sector ownership.” From 2011, the OECD published a series of reports promoting the concept.

The principle of competitive neutrality doesn’t contradict the goal of China’s reform. Fair competition will make SOEs more efficient, encourage innovation and invigorate the economy.

The outpouring of support for the private sector should not just be a measure of expediency aimed at temporarily lifting the GDP, nor should private enterprises be given unfair advantages. A level playing field for all market players should become the norm as the economy becomes more mature and more open to the outside world.